It's been a tumultuous few years for PayPal (PYPL +0.60%) stock. The stock peaked at around $310 per share in the later days of the pandemic. Since then, it has plummeted 79%, as slowing growth, a shifting strategy, and a declining profit margin have dragged it down.
Its new CEO plans to revive the payments company and get things moving back in a positive direction, and has made 2024 a "transition year" for the fintech. Here's the latest update on PayPal's progress and what it means for investors.
NASDAQ: PYPL
Key Data Points
The rise and fall of PayPal
PayPal was flying high during the pandemic, as shutdowns shifted consumer behavior away from in-person experiences to those online, with digital payments a big part of the shift. Over a two-year period, PayPal added over 120 million accounts and surpassed $1 trillion in total payment volume. Amid its frenetic growth, PayPal's management set some lofty growth goals that proved to be unrealistic.
PayPal has continued to see good growth, with total payment volume crossing $1.5 billion last year, up 13% year over year. However, investors have grown concerned about its falling take rate and profit margin.
Over the past several years, PayPal's transaction take rate, or the amount of revenue it retains per transaction, has gradually fallen. Its breakup with eBay, the growing popularity of its unbranded products like Braintree and Venmo, and fierce competition in the payments space have all dragged down its take rate and profit margin.
Dan Schulman, who had led PayPal as its chief executive officer since 2015, announced his retirement last year, paving the way for a fresh perspective to take the helm. The company hired Alex Chriss, who previously worked as an executive vice president and general manager for Intuit's small business and self-employed group.
Here's what PayPal is doing during its transition year
This year, Chriss told investors that PayPal would improve its branded checkout offering for small and medium-sized businesses with PayPal Complete Payments platform. In its first-quarter earnings call, Chriss told investors that the company had expanded this platform to Canada, the U.K., and 20 other European markets.
The company is also working to improve its checkout experience, enabling one-click checkouts called "Fastlane," which is designed to increase conversion rates and reduce checkout times. It expects this product to be more widely available in the U.S. this year.
Early signs are positive. According to BigCommerce, one of PayPal's customers that implemented Fastlane, conversion rates have been as high as 70% while reducing checkout time by 40%.
Image source: Getty Images.
The next year could be a bumpy ride for investors
PayPal's first quarter was solid, as it benefited from tailwinds including growing interest income on customer balances and improvements in transaction loss and credit loss. However, management made clear to investors that the company will have its work cut out for it over the next year.
During its earnings call, Jamie Miller, chief financial officer, told investors that those tailwinds wouldn't be as strong in the back half of the year. The company also expects to see expenses rise as it rolls out its new products on a wider scale.
Is PayPal right for your portfolio?
PayPal is in the midst of a transition that may or may not work. As a result of this uncertainty, the stock trades at a reasonable valuation, with a price-to-sales ratio of 2.3 and a forward price-to-earnings ratio of 14.5.
As investors, it's important to understand your risk tolerance when deciding whether PayPal is suitable for your portfolio.
Conservative investors with a lower tolerance for risk may want to wait on the sidelines to see confirmation that PayPal is making good on its promises. Meanwhile, patient investors who don't mind the uncertainty have a chance to scoop up shares at a reasonable price today.
